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Ausgrid, Endeavour, AGL, Jemena score win in $5b NSW case

Ausgrid, Endeavour, AGL, Jemena score win in $5b NSW case

The NSW electricity grid companies Ausgrid, Endeavour Energy and Essential have won a major victory in a long-running court case that will result in a jump of about $100 per year in electricity costs to the average household.
The Federal Court on Wednesday dismissed all but one of a series of appeals brought by the Australian Energy Regulator against a decision last year by Australian Competition Tribunal on prices for NSW and ACT electricity users.
The decision is a windfall worth billions of dollars for the buyers of the 51 per cent stakes in former NSW state-owned Ausgrid and Endeavour Energy. The investors led by AustralianSuper for Ausgrid and Macquarie Group for Endeavour opted to invest despite the uncertainty over future revenues posed by the court case.

It also affects Jemena, joint owners of ACT electricity network ActewAGL, and will set a precedent for grid companies in South Australia and Victoria included listed Spark Infrastructure which are also fighting the AER.

Energy Minister Josh Frydenberg said the decision underlined the need to reform the national electricity market rules to stop electricity companies gaming the price setting system. He called on the Council of Energy ministers to strengthen the AER's hand to make it harder for power grids to appeal.

"Network businesses only appeal against the decision of the AER if they want to slug consumers more. It is the clear view of the Turnbull government that the AER is best placed to make decisions on how much energy companies can recoup from consumers and not the ACT," Mr Frydenberg said.

The effect of the 228-page judgment is that the AER will have to reverse partially a decision in 2015 that cut the prices electricity grids could charge consumers by as much as 10 per cent in the period from 2014 to 2019.

Ausgrid said the Federal Court decision will allow it to raise prices by 1.5 per cent or $11 a year each year for the next six years for the average household. "Today's decision will allow us to fund and operate a safe and sustainable electricity supply for our customers, while providing a fair return to our shareholders." Ausgrid said.

Paula Conboy, chair of the AER, said the decision was "disappointing for NSW and ACT electricity and gas customers overall. Our 2015 decisions set lower revenues than proposed by the network businesses in NSW and ACT, partly because we concluded that costs above efficient levels should be funded by the network owners, not customers."

The AER in 2015 argued the grids should only be able to pass on "efficient costs" estimated by benchmarking NSW's then state-owned power grids against privately-owned networks in other states and internationally.

The electricity network firms, however, appealed, and in 2016 convinced the Australian Competition Tribunal, a division of the Federal Court, that the AER's benchmarking of operating expenses was too rigid. They also changed the formula for calculating the cost of debt repayments.

In total, the difference between the revenue claimed by the electricity networks and the revenue allowed by the regulator's original decision was over $5 billion. Sources said the court decision on Wednesday would hand the NSW power grid firms close to $2.5 billion above the AER decision.

The cost of distribution and transmission typically accounts for about half of an average household annual electricity bill of $2000 in NSW. The rest is split between generation and retailing which are unregulated and not covered by this decision.

The final outcome will be in dollar terms is still far from clear. The decision by the full bench of the Federal Court is still open to interpretation and possible litigation, or even appeal to the High Court.

The NSW government, fearing a politically embarrassing "price shock", last year sought and was granted a change to the national electricity market rules so the electricity grids will be able to spread the price rise over until 2024.

NSW Energy and Utilities Minister Don Harwin said network prices in NSW were "guaranteed to be lower in 2019 than 2014".

"This price guarantee sought by our Government is legally binding and importantly it means that consumers are protected," Mr Harwin said. "We reject speculation that bills will increase as a result of today's Federal Court decision, and the figures cited are wildly wrong.

"Consumers will pay around 4.5 per cent less for Endeavour Energy's network costs from 1 July 2017. According to Energy Networks Australia, today's Federal Court decision will not materially change network prices."

Endeavour Energy acting chief executive Rod Howard said the company would still implement the cut of about 4.5 per cent from July 1 which was mandated under the AER's 2015 initial decision. "We remain committed to keeping downward pressure on network charges while delivering the safe and reliable electricity supply expected by customers," he said.

Mr Howard said it was too early to make assumptions about potential price increases for customers given reductions in costs that the regulator would have to take into account when recalculate its pricing determination.

He said Endeavour Energy's objective in participating in the Federal Court's review was to protect the long term interests of electricity consumers by balancing customers' needs for safety, reliability and affordability.